Labor has dug a budget hole

What The Australian Financial Review last week called Canberra’s phantom budget debate is starting to get real. And it’s not looking pretty. Treasurer
Wayne Swan
’s confirmation on Friday that the Minerals Resource Rent Tax will raise only a small fraction of the $2 billion it was originally expected to garner this financial year highlights the budgetary hole the Gillard government has helped dig us into.

Also on Friday, the Reserve Bank’s quarterly statement on monetary policy cut its economic growth forecast for next financial year to 2-3 per cent, significantly below the 3 per cent growth underpinning Mr Swan’s still-official forecast of a thin surplus in 2013-14. The RBA tips the economy will grow below its long-term trend of a bit over 3 per cent until at least the end of 2014, frustrating hopes that a stronger economy will generate the tax revenue to get the budget back in the black.

Yesterday, the new Parliamentary Budget Office revealed it was preparing to publish its estimates of the budget’s structural deficit out to 2015-16, an exercise the federal Treasury once did before it became too embarrassing for its political masters. And, as our political editor, Laura Tingle, reveals today, Treasury and the Department of Finance have told the government they will use their pre-election budget assessment to examine the impact of big-ticket spending promises – such as the Gonksi school funding plan and the disability scheme – beyond the usual four-year horizon.

The political heat now is being magnified on Labor’s mining tax mess. The MRRT raised only $126 million in the first half of the year. But the forecast $2 billion it was supposed to generate effectively has already been spent on political promises, including a boost to the superannuation guarantee, an increase in family payments (in lieu of the junked promise to cut company tax), regional infrastructure projects, and simplified depreciation for small business. And, after spending money it now no longer has and ditching its promised budget surplus, Labor is committed to Gonski (priced at $6.5 billion or so a year) and the disability plan, which requires state and federal governments to double the $7 billion they now spend on disabled services.

The political discomfort of all this was highlighted by Labor’s attempts to block release of the mining tax revenue on the grounds that it was illegal to tell even the Treasurer and the Prime Minister the aggregate figure because it might identify individual corporate taxpayers. Under combined pressure from the Greens and the Coalition, the government eventually caved in and revealed the pitiful amount raised by the tax in the first half of the financial year.

This is all the result of Mr Swan’s initial enthusiasm for the original Resource Super Profits Tax proposed by the Henry tax review, which suggested that the government should become a silent 40 per cent equity partner in every resource project in the country. While the design was deeply flawed, so was the political motivation to redistribute any new source of wealth as quickly as possible for political purposes. The outcry helped roll
Kevin Rudd
and the final model – now widely viewed as flawed by many from all sides of politics – was introduced just as mineral prices had passed their peak. The revelation the tax has generated only a fraction of what was forecast – and already has been spent – is another indicator that Labor has dug a massive budget hole for itself and the nation. It’s why Labor is eyeing super tax breaks enjoyed by “the rich".

This seems destined to become
Tony Abbott
’s problem under a Coalition government. Getting the budget out of its deficit hole is likely to dominate politics for the rest of the decade.